Probe into the loans for bribe scandal could get wider with the ministry of corporate affairs (MCA) also planning to seek ?comprehensive details? from a clutch of public sector banks and LIC Housing Finance on the loan agreements that they had entered into with real estate companies. The ministry?s move, aimed at finding out the end use of these funds, could run into a conflict with the Reserve Bank of India which is keen to have an exclusive jurisdiction over banks.
Currently, under the Companies Act 1956, the ministry does not have the mandate to seek loan details from banks and financial institutions that are not registered under the Act. The ministry, however, has made an attempt to bring these entities also under the ambit of the Act through the Companies Bill. However, the parliamentary standing committee virtually discouraged this move.
RBI also has pitched for an exception for banks in the case of class action suits, a provision in the Companies Bill, to be introduced in Parliament shortly. Class action is a form of lawsuit in which a large group of aggrieved parties collectively move court against one or a group of defendants. In the context of company law, it?s utility is essentially to safeguard the interests of small shareholders.
The central bank has argued that since the banking sector already has a well-defined redress mechanism in the form of the Ombudsman Scheme, it would be redundant to bring them under class action suits.
?It is important to note whether the funds borrowed have been used for non-core practices or not. It also has to be looked into whether any party has unduly benefited due to the loan sanctions,? an MCA official told FE. The ministry, he said, would take a final call on the matter shortly.
The move comes barely a week after the CBI arrested key company officials of LIC Housing Finance, Punjab National Bank, Bank of India and Central Bank of India for allegedly running a home finance racket.
The bank officials allegedly colluded with realty firms to approve large sized corporate loans and thereby overriding mandatory conditions for such approvals. Money Matters CMD Rajesh Sharma and two of its employees were also arrested for playing middlemen in getting the loans sanctioned.
Delhi-based corporate lawyer MP Mehrotra warned that the MCA?s move could spark a jurisdictional war with RBI. The MCA does not have the mandate to look into the affairs of the public sector banks. However, he said the ministry, through the concerned registrar of companies (RoC), could still seek information pertinent to the case.
Sangram Patnaik, managing partner of law firm Patnaik & Associates said what creates problem is that there is often a very thin line between the powers of different regulators, leads to confusion.
Anticipating a possible jurisdictional overlap between the MCA and other sectoral regulators, the standing committee on finance headed by former union minister Yashwant Sinha recommended that the Companies Bill should provide the minimum benchmark and allow the sectoral regulators to function within that.
The Bill should provide that MCA while providing for minimum benchmarks in the Bill should allow sectoral regulators like Sebi to exercise their designated jurisdiction through a more detailed regulatory regime, to be decided by them according to circumstances,? the committee noted.
The MCA was made to give an exception for banks in the Competition Act when it comes to regulating mergers and acquisitions, that can have adverse effect on competition.
According to sources the CCI would not look into M&A related issues for banks under the Act once sections 5 & 6 are notified.